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Energy companies are facing new hurdles in their quest to drill for oil in Canada's Arctic waters after a U.S. presidential panel investigating BP PLC's catastrophic Gulf of Mexico spill found glaring shortcomings in the industry's ability to operate safely in the Far North's offshore.

The blue-ribbon group urged that before permitting companies to operate, Washington must address serious safety gaps - challenges that also exist in the Canadian Arctic, including a lack of oil-spill response capability. The panel stopped short of recommending a moratorium on drilling in the Arctic offshore.

The panel, appointed by President Barack Obama after the BP blowout, recommended that the U.S. play a leading role among Arctic nations, including Canada, to create international standards for Arctic oil exploration and a multilateral response capability for potential spills in the Far North.

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In its final report released Tuesday, the national commission said the Deepwater Horizon blowout was a "foreseeable and preventable" accident that resulted from a "culture of complacency" at the federal regulator and within the industry. It concluded that neither the government nor the industry has prepared properly to undertake exploration and development activities in the Arctic offshore, where conditions are far more daunting than those of the Gulf of Mexico.

The U.S. warning comes as Canada's National Energy Board has undertaken a review of its safety and environmental regulations for offshore drilling in the Beaufort Sea, where companies such as Exxon Mobil Corp., Chevron Corp. and BP itself are eager to begin drilling for oil by as early as 2014. Board chairman Gaeton Caron has said the regulator would take the work of the U.S. panel into account in its review.

That NEB process won't conclude for at least six months, but the U.S. report on the BP blowout sheds light on the huge challenges the oil industry faces in persuading the regulator that it can operate safely in the remote, ice-plagued environment.

"Absolutely it feeds into the [NEB]process," said Travis Davies, spokesman for the Calgary-based Canadian Association of Petroleum Producers. "You've got to capture the lessons learned [from the BP accident]and work them into any plan for moving forward."

As a result of the BP accident, the board will likely force the industry to spend huge sums to assemble spill-containing and well-capping equipment in the Arctic. Companies will also find it difficult to persuade the National Energy Board to ease it requirement that any company drilling in deep water have the capacity to drill a relief well in the same season, in the event of a blowout.

The relief-well rule is meant to ensure the a rogue well can be capped before the seas are covered with ice, which would prevent further capping operations. Given the short drilling season in the Beaufort, oil companies have complained that the regulation represents a serious impediment to offshore exploration.

Chevron Canada won a lease auction last summer with a commitment to spend $103-million to explore a 205,000-hectare parcel in the Beaufort Sea, more than 100 kilometres offshore. Chevron spokesman Leif Sollid said the company supports the regulatory review and will be promoting new methods of spill prevention and spill containment to overcome safety fears.

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The U.S. panel was co-chaired by William Reilly, a former Republican head of the Environmental Protection Agency, and Bob Graham, Democratic senator and governor from Florida. It urged Congress to devote far more resources to the federal agency that regulates the offshore industry, with Mr. Reilly saying it is "under-resourced, under-matched, and under-trained."

The U.S. panel also recommended that the government dramatically increase the Coast Guard presence in the Alaska offshore, describing federal emergency response capabilities as "very limited." And it warned the industry will have to make major investments in spill response equipment that is currently lacking in the North.

"Bringing the potentially large oil resources of the Arctic outer continental shelf into production safely will require an especially delicate balancing of economic, human, environmental, and technological factors," the panel concluded. "Both industry and government will have to demonstrate standards and a level of performance higher than they have ever achieved before."

U.S. industry officials have rejected the panel's conclusion that the BP blowout reflected a system-wide failure of the industry and regulator to manage risks. BP's competitors insist the company had not met industry safety standards, a view that would suggest the fault lay not in the regulatory burden but in the enforcement and the company's shortcuts.

Canadian environmental groups say the BP report raises all the issues they have been highlighting to the NEB as to whether drilling in the Arctic offshore can be conducted safely.

"If [offshore drilling]is done, it should only be done after a proper assessment to determine areas of particular sensitivity that should be avoided, and only if it can be done in a way that risk can demonstrably be reasonably managed," said Rob Powell, northern director for WWF-Canada, which filed a submission in November.

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"From what we understand so far, it may be hard to reach that conclusion, but we are trying to keep an open mind."

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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